The Effect of Capital Structure and Agency Costs on Value among Non-Financial Firms in Nigeria

Abstract

This study aimed at examining the impact of capital structure and agency cost on firms’ value of non-financial listed firms in Nigeria from 2011 to 2020. A panel regression techniques was adopted to test the hypothesis. Findings of the study revealed that capital structure has a significant effect on firm’s value. Also, it was revealed that there is a positive and significant effect of asset tangibility and operating expenses to sales on the value of the non-Financial firms in Nigeria. The interactive effect, reveals that a negative effect of long term debt ratio on return on assets (ROA) is increased for firm with high agency problem. Also, the study discovered that the positive effect of debt to assets on return on assets (ROA) is reduced for the firm with high agency problem. Based on the findings, the study recommended that managers should use debt as a source of finance with the utmost efficiency since it is relevant in determining the value of the firm. The report also suggested that shareholders use a variety of ways to keep an eye on agents so that they may be held responsible for any debt necessary to increase the firm's value. We therefore conclude that optimal debt level will reduce agency cost and increase firm’s value.

Keywords: Capital Structure, Total Debt, Agency Cost, Asset Tangibility, Operating Expenses to Sales and Firms’ Value